35SA3 


5 


£»\6a_v^jrfN‘ 


ADDRESS  OF  HON.  JOHN  J.  ESCH,  CHAIRMAN,  COMMITTEE  ON 
INTERSTATE  AND  FOREIGN  COMMERCE,  UNITED  STATES 
HOUSE  OF  REPRESENTATIVES. 


4 

Mr.  Chairman , Ladies  and  Gentlemen: 

A writer  to  secure  local  color  for  a story  visited  a fishing 
village  on  Long  Island  Sound  last  winter  and  inquired  of 
a group  in  an  inn  what  they  did  during  the  long  winter 
months  when  their  fishing  grounds  were  frozen  over;  one 
of  them  replied,  “Well,  sir,  we  just  sit  and  think,  and 
sometimes  only  sit.” 


In  the  critical  days  of  1917,  shortly  after  the  war  was 
declared,  there  was  a man  in  Baltimore  of  large  affairs  and 
holder  of  railroad  securities  who  sat  and  thought  that  the 
time  had  arrived  when  owners  of  securities  of  carriers 
should  organize  for  the  purpose  of  mutual  protection.  His 
thoughts  translated  into  action  resulted  in  a conference 
held  at  Baltimore,  May  23,  1917,  attended  by  500  repre- 
sentatives of  savings  banks,  life  insurance  companies, 
estates,  colleges  and  investing  institutions  generally,  with 
aggregate  holdings  of  railroad  securities  of  two  billions  of 
dollars. 


Under  the  guidance,  zeal  and  industry  of  the  man  from 
Baltimore,  this  conference  developed  into  a National 
Association  of  Owners  of  Railroad  Securities,  incor- 
porated, well  officered  and  with  a committee  representing 
all  parts  of  the  country.  During  the  period  of  Federal 
Control  the  work  of  organization  was  vigorously  prose- 
cuted. The  list  of  members  increased  and  a legislative 
program  to  meet  the  situation  when  Federal  Control 
should  end  was,  after  much  study  and  consultation,  for- 
mulated. The  leading  object  of  the  Association  was  “to 
protect  and  stabilize  the  securities  of  the  carriers  of  the 
country.”  This  was  to  be  done  by  providing  a fixed  per- 
centage return  of  not  less  than  6 per  cent  on  the  aggregate 
property  investment  in  the  railroads  as  a whole,  with  a 
division  of  earnings  in  excess  of  6 per  cent. 

O * 


* 


There  was  a strong  and  determined  opposition  from 
most  of  the  leading  railroad  executives;  there  was  oppo- 
sition in  the  press;  there  was  opposition  in  both  Houses  of 
Congress.  The  executives  proposed  a statutory  rule  of 
rate  making  which  specified  the  items  which  the  Inter- 
state Commerce  Commission  must  take  into  consideration 
in  determining  the  justness  and  reasonableness  of  rates. 
They  feared  that  a fixed  percentage  return  inserted  in  the 
law  would  make  it  a football  of  politics. 

Undaunted  by  such  a formidable  array,  the  President  of 
the  Association  and  his  associates  sought  the  ablest  coun- 
sel and  the  co-operation  of  other  organizations.  The 
Transportation  Conference  as  representative  of  the 
United  States  Chamber  of  Commerce  favored  the  fixed 
percentage  return,  as  did  Judge  Prouty,  Director  General 
Hines,  and  Chairman  Clark,  of  the  Interstate  Commerce 
Commission.  But  Congress  was  the  final  arbiter.  To  per- 
suade it  to  adopt  the  plan  of  a fixed  percentage  return  the 
President  of  the  Association  had  prepared  and  presented 
to  the  House  Committee  on  Interstate  and  Foreign  Com- 
merce one  of  the  most  remarkable  memorials  ever  offered 
to  Congress.  The  signers  represented  19^  billions  of 
dollars,  or  70  per  cent  of  the  resources  of  financial  institu- 
tions in  the  fifty-six  largest  cities  of  the  United  States. 
They  represented  5,000  savings  banks,  life  insurance,  fire, 
marine,  and  surety  companies,  national  and  state  banks 
and  trust  companies.  They  represented  other  fiduciary 
institutions  such  as  estates  and  individual  investors  to  the 
number  of  8,189.  They  represented  1,600  business  organ- 
izations such  as  boards  of  trade,  chambers  of  commerce, 
and  business  firms  with  a membership  of  over  30,000. 
They  represented  over  nine  million  savings  depositors  and 
twenty-three  millions  of  policy  holders.  Fortified  by  such 
backing,  the  President  of  the  Association  made  a forceful 
appeal  not  only  to  the  Committees  of  the  Senate  and 
House,  but  also  to  the  entire  Congress  and  to  the  country. 
The  bill  as  passed  by  the  House  contained  a statutory 
rule  of  rate  making.  The  Senate  adopted  the  plan  of  a 
fixed  percentage  return.  After  a struggle  of  many  weeks 
in  conference,  the  latter  was  incorporated  in  the  Trans- 
portation Act  of  1920.  Who  is  this  man  who  for  three 


2 


years,  without  pay,  has  devoted  his  energies  and  most  of 
his  time,  in  the  face  of  opposition  and  difficulties  which 
would  have  discouraged  most  men,  “to  protect  and 
stabilize  the  securities  of  the  carriers  of  the  country,”  held 
directly  or  indirectly  by  fifty  millions  of  our  people?  He 
is  the  man  from  Baltimore,  President  of  the  National 
Association  of  Owners  of  Railroad  Securities,  the  honor 
guest  of  the  evening — S.  Davies  Warfield. 

The  Transportation  Act 

The  railroads  were  taken  over  by  the  President  January 
i,  1918,  under  a clause  contained  in  the  Army  Appropria- 
tion Bill  enacted  in  1916.  The  scope  and  limitations  of  the 
President’s  authority  in  connection  with  such  taking  over 
were  defined  in  the  Federal  Control  Act,  approved  March 
2 1,  1918.  Federal  Control,  continuing  for  a period  of 
twenty-six  months,  was  terminated  by  the  Transporta- 
tion Act  on  March  1st  of  this  year.  Between  our  declara- 
tion of  war,  April  6,  1917,  and  the  beginning  of  Federal 
Control,  January  1,  1918,  the  railroad  executives,  through 
their  War  Board,  sought  to  meet  the  enormously  increased 
demands  for  transportation  necessitated  by  the  war,  by 
combining  the  leading  roads  into  a national  system  for 
purposes  of  unified  operation.  While  much  was  accom- 
plished, legal  obstacles  in  the  form  of  the  Sherman  Anti- 
Trust  Law,  failure  of  some  of  the  trunk  lines  to  co-operate, 
and  the  indiscriminate  issuance  of  priority  orders  by 
various  government  officials,  prevented  the  increase  in 
the  quantity  and  efficiency  of  the  service  which  the  Presi- 
dent and  his  advisers  deemfed  necessary  to  win  the  war. 
He,  therefore,  took  over  the  roads,  and  Congress  enacted 
the  Federal  Control  Act  to  enable  him  to  operate  them. 

Under  Federal  operation,  revolutionary  changes  were 
made  in  the  matter  of  regulations,  financing  and  adminis- 
tration. Many  of  these  changes,  such  as  withdrawal  of 
trains,  re-routing,  preference  in  shipment  to  essential  or 
war  industries,  gave  rise  to  widespread  inconvenience,  suf- 
fered, however,  uncomplainingly  by  our  people,  while  the 
war  was  still  on.  With  the  signing  of  the  armistice  Novem- 
ber 11,  1918,  and  cessation  of  war  production,  a popular 


3 


demand  arose  for  a speedy  termination  of  Federal  Control 
and  a restoration  of  the  roads  to  private  operation,  a de- 
mand largely  augmented  by  the  fact  that  the  roads  as  and 
while  operated  by  the  Government,  were  failing  to  earn 
the  standard  return  guaranteed  under  the  Federal  Con- 
trol Act,  by  more  than  a million  dollars  a day,  a deficit 
which  had  to  be  made  good  out  of  the  Federal  treasury. 

The  President,  conscious  of  this  demand,  declared  in  a 
message  to  Congress  early  in  1919,  that  he  would,  under 
authority  granted  to  him  by  the  Federal  Control  Act,  re- 
turn the  roads  to  their  owners  on  January  1,  1920.  He 
did  not  advise  Congress  as  to  the  terms  and  conditions 
of  such  return;  in  fact,  he  frankly  stated  that  as  to  the 
solution  of  the  grave  and  complicated  problems  arising 
out  of  Federal  Control,  he  had  no  confident  judgment  of 
his  own.  The  appropriate  Committees  of  Senate  and 
House,  and  Congress  itself,  therefore,  worked  out  their 
own  solution  as  now  embodied  in  the  Transportation  Act. 

Perhaps  to  no  Congress  has  a more  difficult,  complicated 
or  important  piece  of  legislation  ever  been  submitted.  Its 
consideration  extended  over  a period  of  many  months, 
hundreds  of  witnesses  were  heard,  and  thousands  of  pages 
of  testimony  and  exhibits  were  presented.  After  four 
months  devoted  to  hearings  and  consideration  of  numerous 
plans  and  suggested  amendments,  the  House  passed  its 
bill  November  17,  1919.  The  Senate  passed  the  Cummins 
bill  December  19th.  Two  days  later  both  bills  were  sent 
to  conference.  Owing  to  the  wide  and  radical  differences 
between  the  bills  on  highly  important  matters,  it  was  im- 
possible for  the  conferees  to  get  action  on  a conference 
report  by  January  1,  1920,  the  dated  fixed  originally  by 
the  President  for  the  return  of  the  roads.  The  President, 
therefore,  changed  the  date  to  March  1,  1920.  After  eight 
weeks  of  continuous  and  strenuous  effort,  the  conferees 
reported  and  the  bill  was  approved  February  28th. 

The  Transportation  Act  is  not  based  upon  government 
ownership.  Outside  of  advocates  of  the  Plumb  Plan, 
there  was  little  or  no  sentiment  in  Congress  in  its  favor. 
While  there  were  some  advocates  of  an  extension  of 
Federal  Control,  they  secured  little  support  in  Congress. 
The  adjustment  of  financial  relations  between  the  Govern- 


4 


ment  and  the  carriers  even  after  twenty-six  months  of 
Federal  Control,  has  proven  so  complicated  that  were 
control  to  continue  two  years  longer,  the  situation  would 
have  become  so  scrambled  as  to  make  solution  impossi- 
ble. This  would  have  compelled  government  ownership 
or  made  it  highly  probable. 

The  framers  of  the  Act  decided  it  was  wisest  to  build 
upon  the  existing  Interstate  Commerce  Act,  whose  founda- 
tions were  tried  and  well  laid,  instead  of  building  a struc- 
ture entirely  new.  It  would  have  been  fatal  to  have  re- 
turned the  roads  without  legislation,  which  made  it  possi- 
ble for  them  to  meet  the  new  conditions  consequent  upon 
the  war. 


Railroad  Credit 

The  primary  duty  imposed  upon  Congress  was  to  re- 
store or  re-establish  credit  which  would  enable  the  roads 
to  supply  themselves  with  the  equipment  necessary  to 
handle  the  traffic  promptly  and  economically  and  provide 
the  additions  and  betterments  during  the  reconstruction 
period.  Experts  declared  that  at  least  250,000  more  freight 
cars,  9,000  more  passenger  cars,  4,000  more  locomotives, 
with  proportionate  enlargements  of  other  facilities,  were 
needed  to  do  the  business  of  the  country  as  it  ought  to  be 
done.  But  the  added  equipment  and  facilities  at  current 
prices  would  mean  an  investment  of  over  $600,000,000 
during  the  year  of  1920.  We,  therefore,  were  presented 
with  the  problem  of  returning  the  roads  to  their  owners 
under  such  conditions  as  would  enable  them  to  borrow  or 
otherwise  secure  $600,000,000  of  new  money  and  compel 
its  expenditure  for  new  equipment  and  facilities  and  for 
next  year  to  borrow  or  secure  one  billion  dollars  for  like 
purposes,  and  at  least  an  equal  amount  for  subsequent 
years.  We  knew  that  at  the  end  of  Federal  Control,  the 
roads,  except  a few  of  the  strongest,  could  not  finance 
themselves,  that  maturities  for  this  year  and  succeeding 
years  amounting  to  hundreds  of  millions  of  dollars  had 
to  be  met  if  roads  were  to  be  kept  out  of  the  receiver’s 
hands,  that  sales  of  stocks  was  impossible  and  further 
issues  of  bonds  invited  disaster. 


5 


How  the  Problem  Was  Met 

The  Transportation  Act  seeks  to  solve  the  problem  as 
follows: 

First.  It  refunds  the  indebtedness  of  the  carriers  to  the 
Government,  with  certain  offsets,  over  a period  of  ten 
years,  with  interest  at  6 per  cent  per  annum. 

Second.  It  extends  the  guaranty  of  the  standard  return 
for  a period  of  six  months  after  March  ist. 

Third.  It  provided  a revolving  fund  of  $300,000,000 
out  of  which  loans  can  be  made  to  the  roads  at  6 per  cent 
per  annum  for  periods  not  exceeding  fifteen  years. 

Fourth.  It  establishes  a rule  of  rate  making  under 
which  the  Interstate  Commerce  Commission  is  to  so  ad- 
just rates  as  to  yield  a net  income  of  not  less  than  5^2  per 
cent  upon  the  value  of  the  property  rendering  the  service, 
considered  as  a whole,  this  rule  to  continue  for  two  years, 
after  March  1,  1920,  and  thereafter  the  Commission  to  fix 
the  rate  of  return.  It  is  further  provided  that  any  road 
earning  more  than  6 per  cent  shall  divide  such  excess  with 
the  Government. 

Section  422  of  the  Transportation  Act 

This  last  provision  is  contained  in  Section  422  of  the 
Transportation  Act  and  was  believed  to  be  necessary  to 
enable  the  roads  to  secure  the  money  and  the  credit  re- 
quired to  purchase  additional  equipment  and  betterments 
at  lowest  possible  rates  and  take  care  of  the  present  and 
immediately  prospective  wants  of  transportation.  With 
the  roads  again  under  private  operation  and  the  guaranty 
of  the  standard  return  withdrawn,  there  must  be  proper 
encouragement  given  to  the  investing  public  if  the  car- 
riers are  to  obtain  the  necessary  funds  to  provide  the  addi- 
tions, betterments  and  extensions  required  by  an  expand- 
ing commerce.  The  public  cannot  be  compelled,  but  must 
be  induced  to  invest.  Stabilizing  the  credit  of  the  carriers 
is  a strong  and  necessary  inducement.  A public  utility 
which  has  its  income  controlled  through  the  regulation  of 
its  rates  and  its  expenses,  especially  wages,  also  fixed  by 


6 


governmental  authority,  is  entitled,  upon  moral  if  not 
legal  grounds,  to  fair  and  just  treatment. 

Section  422  of  the  Act,  which  provides  for  a fair  return 
upon  the  aggregate  value  of  the  property  of  the  carriers 
held  and  used  in  the  service  of  transportation,  established 
a new  principle  in  rate  making  and  supplants  the  former 
rule  which  gave  the  Interstate  Commerce  Commission  as 
its  sole  rule  or  standard  the  direction  that  rates  must  be 
‘‘just  and  reasonable.”  Under  this  section  the  Commis- 
sion must  value  the  railroads  as  a whole  or  by  territories 
and  then  so  adjust  the  rates  that  they  will  yield  as  a fair 
return  5^  per  cent  upon  the  aggregate  value  and  may 
allow  an  additional  one-half  per  cent  for  improvements, 
betterments  or  equipment  chargeable  to  capital  account. 
This  section  has  given  rise  to  most  of  the  opposition  to 
the  Act  and  has  been  wilfully  misrepresented  as  to  its  pur- 
pose and  effect.  It  is  charged  that  this  section  guarantees 
per  cent  and  a possible  6 per  cent  return  on  eight 
billions  of  watered  stock.  As  the  amount  of  stock  out- 
standing January  1,  1918,  amounted  to  nine  billion  dollars, 
this  would  mean  that  practically  all  the  stock  was  water, 
which  is  absurd. 

Few  roads,  as  they  stand  today,  are  over-capitalized. 
The  truth  is  that  the  fair  return  is  not  based  upon 
capitalization  at  all,  but  upon  aggregate  value,  and  this 
value  as  determined  by  the  Commission  in  its  decision 
made  public  July  31st,  is  $18,900,000,000,  which  is  $1,140- 
572,611  less  than  the  amount  as  claimed  by  the  carriers, 
and  over  a billion  less  than  the  capitalization. 

The  Commission  with  its  record  of  the  financial  history 
of  every  road,  with  its  knowledge  of  their  receipts  and  ex- 
penditures and  the  data  already  presented  to  it  by  its 
Valuation  Board,  can  be  trusted  to  determine  the  aggre- 
gate value  which  will  be  just  to  all  interests.  When  the 
Valuation  Board  shall  finish  its  work,  the  valuation  it 
fixes  will  thereafter  become  the  basis. 

Return  Not  a Guaranty 

It  is  further  charged  that  the  6 per  cent  return  is  a 
guaranty,  that  every  railroad  shall  receive  this  amount. 


7 


This  is  absolutely  unwarranted.  The  return  is  based  on 
the  aggregate  value  of  the  roads  taken  country-wide  or  by 
territories.  Few  roads  would  share  of  the  total  valuation. 
Some  would  earn  i per  cent,  2 per  cent,  or  3 per  cent, 
some  may  not  earn  their  operating  expenses.  It  will  be 
left  to  each  road  to  earn  what  it  can,  and  through  initiative, 
economy,  efficiency  and  foresight  to  increase  its  earnings. 
There  is,  therefore,  no  guaranty,  as  the  Government  does 
not  make  good  to  any  road  the  difference  between  what  it 
earns  less  than  6 per  cent  and  6 per  cent. 

On  the  contrary,  the  Government  will  gain  a half  of  any 
excess  over  the  6 per  cent  and  can  use  this  excess  in  loans 
to  weak  roads  at  6 per  cent  interest  or  in  providing  equip- 
ment to  be  leased  to  roads  at  a rental  which  will  produce 
6 per  cent  on  the  value  of  such  equipment.  Strong  roads 
earning  more  than  6 per  cent  strongly  protested  against 
this  division  of  an  excess  and  questioned  its  constitution- 
ality but  the  framers  of  the  Act  are  confident  it  will  be 
sustained  should  a test  be  made  in  the  courts. 

That  the  new  rule  of  rate  making  is  not  a guaranty  is 
further  evident  from  the  fact  that  “In  performing  its 
duties  the  Commission  must  estimate  for  a future  period 
the  volume  of  traffic  and  the  cost  of  maintenance  and 
operation,  and  these  uncertain  elements  necessarily  re- 
move the  provisions  from  the  field  of  a government 
guaranty.  ” To  give  assurance  that  there  will  be  an  excess 
to  be  divided  and  that  all  earnings  will  not  be  recklessly 
expended,  Section  422  provides  that  management  should 
be  “honest,  efficient  and  economical”  and  that  expendi- 
tures for  maintenance  of  way,  structures  and  equipment 
be  “reasonable.” 

The  plan  of  dividing  the  excess  over  6 per  cent  unless  all 
roads  are  under  a common  control  or  ownership,  is  the 
only  one  which  will  prevent  some  roads  earning  excessive 
profits,  as  rates  must  be  uniform  and  the  same  between 
competitive  points. 

The  principle  embodied  in  the  Transportation  Act,  fix- 
ing rates  so  as  to  provide  a maximum  rate  of  return  on  the 
value  of  the  property,  is  found  in  statutes  of  several  of  the 
states  regulating  public  utilities.  Legislative  bodies  can- 
not confiscate  private  property.  The  Courts  will  protect 


8 


such  property  and  when  used  in  the  public  interest  will 
see  that  it  gets  a fair  return.  Instead  of  leaving  such  fair 
return  to  be  dependent  upon  the  just  and  reasonable  rates 
which  the  Commission  is  to  fix,  Congress  itself  established 
what  in  its  judgment  it  considered  to  be  fair,  in  the  Trans- 
portation Act,  for  the  two  years  ending  March  i,  1922. 

Opponents  of  Section  422  of  the  Act,  which  rehabilitates 
railroad  credit  and  enables  the  roads  to  again  become 
self-sustaining  and  capable  of  rendering  the  service  de- 
manded by  the  people,  and  bridges  the  critical  period  of 
reconstruction,  offer  no  alternative  of  a constructive  or 
sufficing  character  other  than  government  ownership  or 
the  Plumb  Plan. 


The  Plumb  Plan 

The  Plumb  Plan  involves  government  ownership,  but 
goes  much  farther  by  requiring  operation  by  the  employees. 
This  is  more  than  socialism.  It  smacks  of  Sovietism.  The 
American  people  do  not  want  government  ownership. 
Both  Republican  and  Democratic  platforms  are  against 
it.  This  js  no  time  to  add  to  the  twenty-six  billions  of  our 
present  indebtedness,  the  billions  that  will  be  necessary 
to  buy  the  roads.  Our  tax  burdens  are  already  too  heavy. 
To  add  two  million  employees  to  the  government  list  is  a 
situation  which  should  cause  grave  forebodings. 

A study  of  government-owned  railroads  in  other  coun- 
tries shows  higher  costs,  higher  rates  and  poorer  service 
than  we  have  had  under  private  ownership.  The  maxim 
holds  good  that  “public  waste  is  more  than  private 
profit.”  Conservative  and  farsighted  labor  leaders  are  not 
in  favor  of  government  ownership,  much  less  the  Plumb 
Plan.  Samuel  Gompers,  head  of  the  American  Federation 
of  Labor,  bitterly  opposed  government  ownership  of  rail- 
roads in  the  annual  convention  of  the  Federation  held  in 
Montreal,  Canada,  last  June. 

Plumb  contends  that  the  Government  ought  to  purchase 
the  roads  for  twelve  billions.  He  favors  the  elimination  of 
capital  represented  by  stocks.  The  courts,  under  the 
Constitution,  will  not  sustain  his  contention.  The  people 
object  to  authorizing  a board  to  run  the  roads,  consisting 


9 


of  ten  employees  and  only  five  representing  the  public. 
It  objects  to  such  board  fixing  the  wages  which  all  of  the 
people  must  pay  through  freight  and  passenger  rates. 
The  Plumb  Plan  provides  for  a distribution  of  the  surplus, 
if  any,  but  leaves  the  payment  of  deficits  to  fall  upon  the 
public  treasury. 

Extensions  and  Abandonments 

Hereafter,  under  the  Act,  no  carrier  by  railroad  can 
undertake  the  extension  of  its  line  of  railroad  or  the  con- 
struction of  a new  line  unless  and  until  it  obtains  from  the 
Commission  a certificate  that  the  present  or  future  con- 
venience and  necessity  require  or  will  require  the  con- 
struction or  operation,  or  construction  and  operation  of 
such  additional  or  extended  line  of  railroad.  Nor  shall 
there  be  any  abandonment  of  any  existing  line  without 
securing  a like  certificate. 

This  provision  follows  statutes  in  Wisconsin,  New  York 
and  other  states,  and  is  designed  to  prevent  unwise  exten- 
sions of  existing  lines  and  construction  of  new  ones.  Con- 
struction of  a parallel  line  often  makes  of  the  existing  line 
a “weak  sister.”  Where  a single  line  could  be  made  to  do 
all  the  business,  the  additional  line  imposes  upon  the  pub- 
lic the  burden  of  sustaining  two  weak  lines,  with  poor 
service.  The  same  is  true  in  a measure  with  reference  to 
the  building  of  many  branch  and  short  lines.  Where  com- 
munities are  served  by  a road,  it  should  not  be  permitted 
to  be  abandoned  without  a full  opportunity  for  all  parties 
interested  to  be  heard  before  a competent  and  impartial 
tribunal. 


Stock  and  Bond  Control 

One  of  the  most  important  provisions  of  the  new  Act  is 
contained  in  Section  439,  giving  the  Commission  authority 
to  pass  upon  issue  of  notes  with  a maturity  in  excess  of 
two  years.  In  1910,  1914,  and  1916  the  House  of  Repre- 
sentatives passed  bills  having  the  above  purpose,  but 
failed  to  become  a law.  Public  sentiment  has  been  so 
developed  since  1910  that  practically  no  objection  was 
raised  to  this  section  during  the  consideration  of  the 


10 


Transportation  Act.  The  country  heartily  approves  of 
giving  the  Commission  such  control  over  the  issues  of 
securities  as  will  stabilize  them  and  prevent  their  ex- 
ploitation. It  is  confidently  believed  that  the  scrutiny  of 
such  issues  will  beget  a greater  confidence  in  them  on  the 
part  of  the  investing  public.  Had  such  legislation  been  on 
the  statute  books  during  the  last  ten  years,  stockholders 
and  the  general  public  could  not  have  been  afflicted  with 
such  financial  fiascoes  as  presented  by  the  Frisco,  the 
Rock  Island,  the  Pere  Marquette,  the  New  Haven  and 
others. 

Consolidations 

The  war  has  taught  the  value  of  consolidations  and 
combinations  under  proper  regulation  and  control.  The 
Act  authorizes  the  Commission  to  prepare  a plan  for  the 
grouping  or  consolidation  of  the  many  railroad  systems 
of  the  United  States  into  a limited  number  of  large  com- 
peting systems  of  approximately  equal  strength.  It  is  con- 
templated to  gradually  bring  together  the  railroads  into  a 
few  systems  so  that  these  systems  can  “ employ  uniform 
rates  in  the  movement  of  competitive  traffic  and  under 
efficient  .management  earn  substantially  the  same  rate  of 
return  upon  the  value  of  their  respective  railway  properties.  ” 

The  carrying  out  of  this  plan  will  enable  the  Commis- 
sion to  solve  the  problem  of  the  “weak  sisters,”  improve 
service,  and  eliminate  whatever  of  over-capitalization 
there  may  be  in  the  constituent  roads  making  up  the 
consolidation. 

Car  Service 

The  Act  amends  the  Car  Service  Act  of  May,  1917,  by 
extending  its  scope  and  enlarging  the  powers  of  the  Com- 
mission. Every  carrier  by  railroad  is  required  to  furnish 
safe  and  adequate  car  service.  In  cases  of  shortage  of 
equipment,  congestion  of  traffic,  or  other  emergency,  the 
Commission  can  make  such  just  and  reasonable  directions 
with  reference  to  car  service,  without  regard  to  ownership, 
as  in  its  opinion  will  best  promote  the  service  in  the  in- 
terest of  the  public  and  the  commerce  of  the  people.  It 
can  also  require  the  joint  or  common  use  of  terminals  upon 
reasonable  terms.  It  can  also  give  directions  for  prefer- 


11 


ence  or  priority  in  transportation,  embargoes,  or  move- 
ment of  traffic  under  permits.  It  will  thus  be  seen  that 
the  Transportation  Act  retains  the  benefits  which  Federal 
Control  demonstrated.  These  new  powers  in  the  Com- 
mission are  now  being  given  practical  application  through 
recent  orders  relating  to  the  coal  situation.  The  authority 
granted  is  ample  to  meet  emergency  conditions  and  were 
it  nor  for  car  shortage  and  recent  labor  troubles  relief 
could  be  immediate. 

It  may  be  of  interest  to  know  what  has  been  accom- 
plished since  March  1st  in  relieving  congestion  and  car 
shortage  by  the  Interstate  Commerce  Commission  in  the 
exercise  of  the  powers  granted  over  car  service  by  the 
Transportation  Act. 

Those  dissatisfied  with  the  results  of  private  operation 
during  the  last  nine  months  under  the  new  Act,  should 
remember  that  the  business  offered  the  railroads  has  mate- 
rially exceeded  their  capacity  because:  First.  The  volume 
of  business  has  greatly  outgrown  the  railroads  with  refer- 
ence to  terminals,  trackage,  cars,  locomotives,  and  other 
equipment.  Second.  Crowded  to  the  limit  with  war  use, 
the  railroads  were  returned  to  their  owners  suffering  from 
under-maintenance.  Third.  The  outbreak  of  unlawful 
strikes  in  April  at  various  gateways  paralyzed  traffic  for 
weeks.  To  overcome  these  obstacles  and  supply  the  de- 
mands of  commerce  increased  by  a great  crop,  engaged 
the  immediate  and  earnest  attention  of  the  railroad 
executives  and  the  Interstate  Commerce  Commission. 
Whatever  of  success  they  have  attained  is  largely  due  to 
the  cordial  and  ready  co-operation  of  shippers  and  the 
general  public. 

On  March  ist,  when  Federal  Control  ended,  there  were 
105,000  cars  which  could  not  be  currently  handled.  On 
April  1 6th,  after  two  weeks  of  unlawful  striking,  the  num- 
ber had  increased  to  288,000.  The  situation  proved  so 
serious  that  the  Commission  on  May  20th,  issued  Service 
Order  No.  1,  under  which  the  carriers  were  directed  to 
forward  traffic  to  destination  by  the  most  expeditious  and 
available  routes,  without  regard  to  routing  orders,  speci- 
fied by  the  shippers,  or  ownership  of  cars.  The  Car  Serv- 
ice Division  of  the  American  Railroad  Association  co- 


12 


operated  with  the  Commission  and  with  the  shippers  so 
successfully  that  on  September  17th  the  car  accumulation 
had  been  reduced  to  47,438.  This  reduction  of  congestion 
has  enabled  the  roads  to  cancel  or  modify  many  of  their 
embargoes  and  thus  still  further  ease  the  situation. 

Car  shortage  still  remains  the  most  pressing  need  of 
transportation.  There  is  no  mystery  about  the  existing 
car  shortage.  It  began  in  1916  and  prior  to  our  entrance 
into  the  war  our  car  shops  were  manufacturing  cars  for 
the  use  of  countries  which  afterwards  became  our  allies. 
All  our  energies  upon  our  entrance  into  the  war  and  during 
its  continuance  were  directed  to  war  production.  During 
the  twenty-six  months  of  Federal  Control,  only  100,000 
freight  cars  and  1,900  locomotives  were  ordered,  whereas 
our  annual  output  of  cars  prior  to  1917  was  over  100,000 
and  about  80,000  were  annually  scrapped. 

During  January  and  February,  the  last  two  months 
under  Federal  Control,  the  average  daily  car  shortage  was 
about  80,000.  The  average  for  the  week  ending  September 
1st  was  146,070,  but  this  had  been  reduced  for  the  week 
ending  September  17th  to  96,114.  This  indicates  that 
still  greater  efforts  must  be  put  forth  if  further  reductions 
are  to  beobtained.  Not  much  relief  can  be  expected  from 
new  car  production  for  the  current  year.  From  January 
1st  to  August  1st,  50,275  freight  cars  were  on  order  but 
undelivered.  The  new  rate  increases  which  did  not  be- 
come effective  until  August  26th,  will  increase  orders  and 
stimulate  production. 

More  Production  Program 

In  July  the  Association  of  Railroad  Executives  met  at 
Chicago  and  resolved  that  all  of  its  members  and  other 
carriers  be  urged:  “To  devote  their  utmost  energies  to 
the  more  intensive  use  of  existing  equipment  and  as  defi- 
nite aims  undertake,  with  the  co-operation  of  the  public, 
to  attain: 

“1.  An  average  daily  minimum  movement  of  freight 
cars  of  not  less  than  30  miles  per  day; 

“2.  An  average  loading  of  30  tons  per  car; 


13 


“3-  Reduction  of  bad  order  cars  to  a maximum  of  4 
per  cent  of  total  owned ; 

“4.  An  early  and  substantial  reduction  in  the  number  of 
locomotives  now  unfit  for  service,  and 

“5.  More  effective  efforts  to  bring  about  the  return  of 
cars  to  the  owner  roads.” 

As  the  country’s  business  could  not  wait  for  new  cars 
and  locomotives,  immediate,  and,  in  fact,  the  only  relief 
lay  in  the  more  effective  use  of  equipment  already  in  use. 
It  may  interest  you  to  know  of  the  progress  that  has  been 
made  as  a result  of  this  “More  Production”  program, 
aided  by  service  orders  of  the  Commission. 

A car  movement  of  30  miles  per  day  for  the  country  as 
a whole  has  never  yet  been  attained.  The  significance  of 
speeding  up  is  made  clear  when  it  is  understood  that  an 
increase  of  one  mile  per  day  for  the  2,500,000  freight  cars 
in  the  United  States  is  equivalent  to  adding  100,000  cars 
to  the  available  equipment.  For  May  of  this  year,  the 
average  movement  of  a freight  car  was  24.1  miles,  for 
June  25,  for  July  25.7,  for  September  28.4,  a gratifying 
increase.  In  July  of  last  year  it  was  only  21.3,  or  4.4  less 
than  for  July  of  this  year,  or  an  equivalent  of  410,403  cars. 

As  to  the  second  aim  of  the  Railway  Executives  to  in- 
crease the  average  loading  of  cars  to  30  tons,  much  atten- 
tion has  been  given,  with  good  results.  “The  tons  per  car 
(revenue  and  non-revenue)  for  the  year  1917  were  27. 
For  1918,  when  the  patriotic  appeal  was  very  strong,  the 
railroads,  with  the  splendid  co-operation  of  the  shippers, 
were  able  to  show  an  average  of  29.1,  but  for  1919,  the 
loading  dropped  to  27.8  tons.  The  figures  for  January, 
February  and  March  this  year,  were  28.3  tons  in  each 
case,  while  for  April  the  loading  was  28.6,  May  28.3,  June 
29  tons,  and  October  29.6.”  This  shows  that  the  high- 
water  mark  of  the  peak  year,  1918,  had  been  exceeded  in 
October  of  this  year.  Already  a number  of  roads  have 
reached  and  some  of  them  have  passed  the  goal  fixed  by 
the  executives.  An  average  of  only  one  ton  per  each  loaded 
car  would  be  equivalent  to  the  addition  of  80,000  new  cars 
to  the  available  supply. 

As  to  the  third  aim,  reduction  of  bad  order  cars  to  a 
maximum  of  4 per  cent  of  total  owned,  little  progress  has 


14 


thus  far  been  made,  due  to  a lack  of  repair  workers  and 
materials.  When  Federal  Control  began,  of  the  2,260,000 
freight  cars  5.7  per  cent,  or  120,780  cars,  were  reported  in 
bad  order.  At  the  end  of  the  Federal  Control,  of  the 

2.362.000  freight  cars,  6.7  per  cent,  or  153,727  cars  were  in 
bad  order.  There  has  been  little  change  since.  Every 
1 per  cent  improvement  in  the  bad-order  car  situation 
means  an  addition  of  about  25,000  cars  to  the  available 
supply. 

As  to  the  reduction  of  the  number  of  locomotives  now 
unfit  for  service,  no  statistics  are  available. 

As  to  the  fifth  aim  of  bringing  about  the  return  of  cars 
to  owner  roads,  continued  progress  is  shown.  Prior  to  the 
war,  from  50  per  cent  to  60  per  cent  of  freight  cars  were 
on  the  lines  owning  them.  During  the  war,  cars  were 
widely  scattered  so  that  when  Federal  Control  ended 
March  1st  of  this  year,  only  21.9  per  cent  were  on  their 
home  lines.  On  October  1st,  due  to  orders  of  the  Commis- 
sion and  efforts  of  the  carriers,  the  number  had  been  in- 
creased to  30  per  cent  and  further  increases  are  expected. 
An  important  result  of  getting  cars  back  to  their  own 
rails  lies  in  the  fact  that  they  will  be  more  thoroughly  and 
promptly  repaired. 

Notwithstanding  the  fact  that  the  business  offered  for 
transportation  exceeds  the  ability  of  the  carriers  to  handle 
it  promptly,  a tremendous  volume  of  business  has  been 
moving  since  Federal  Control  ended.  For  the  four  weeks 
ended  August  28th,  there  were  more  cars  loaded  than  for 
the  corresponding  periods  in  1919  and  the  peak  year,  1918. 
This  may  have  been  due  to  the  fact  that  shippers  sought 
to  load  prior  to  the  advance  in  rates  effective  August  26th, 
and  yet  records  for  the  four  weeks  ending  September  25th 
are  only  slightly  less  than  for  the  four  weeks  in  August  of 
this  year  and  are  almost  equal  to  the  corresponding  period 
in  the  peak  year,  1918.  In  fact,  in  the  week  ended  Sep- 
tember 25th,  994,687  cars  were  loaded  with  commercial 
freight,  which  almost  equals  the  best  weekly  record  made 
in  1918  under  the  stress  of  war  need.  A reduction  of  only 

55.000  loads  in  September,  as  compared  with  August, 
would  indicate  that  the  increase  in  rates  in  August  had 
but  a slight  effect  in  reducing  the  volume  of  business. 


15 


Last  year  70,000  grain  cars  were  stored  in  the  West  in 
anticipation  of  the  harvest  of  that  year.  This  year  it  was 
impossible  to  store  any.  To  meet  this  situation,  the  Com- 
mission under  Service  Order  No.  2,  of  May  20th,  directed 
the  movement  of  cars  from  surplus  territory  in  the  East 
to  deficit  territory  in  the  West.  Relocation  and  equaliza- 
tion orders  of  the  Car  Service  Division  of  the  American 
Railroad  Association  further  aided  this  movement  so  that 
some  90,000  box  cars  were  delivered  and  more  were  to 
follow.  From  January  1st  to  the  end  of  August  of  this 
year,  1,271,878  cars  of  grain  and  grain  products  were 
loaded,  the  largest  number  during  the  last  five  years,  ex- 
cept 1918,  and  only  10,000  less  than  for  that  year.  In 
spite  of  this  showing,  from  January  1st  to  September  18th, 
there  were  158,764  less  cars  of  grain  loaded  than  for  the 
corresponding  period  of  1919,  which  indicates  that  in- 
creased efforts  would  have  to  be  made  to  take  care  of  the 
grain  movement  for  the  balance  of  the  year. 

The  statistics  I have  used  to  indicate  the  progress  made 
in  administering  the  car  service  section  of  the  Transporta- 
tion Act  have  been  supplied  to  me  by  Secretary  McGinty 
of  the  Interstate  Commerce  Commission  and  Julius  H. 
Parmelee,  Director  of  the  Bureau  of  Railway  Economics. 
They  may,  therefore,  be  taken  as  official. 

Adjustment  of  Labor  Disputes 

Title  III  of  the  Act  provides  for  the  adjustment  of  labor 
disputes.  Credit  and  sufficient  equipment  will  not  pro- 
vide efficient  transportation  without  labor.  Satisfied 
labor  is  necessary  to  insure  efficient  service.  All  concede 
that  railroad  employees  should  have  good  wages  and 
working  conditions  and  reasonable  hours.  The  problem 
was  how  these  could  best  be  secured  keeping  in  mind  the 
interests  of  the  owners  and  the  general  public.  The  Act 
creates  a Railway  Labor  Board  of  nine  members,  ap- 
pointed by  the  President  and  confirmed  by  the  Senate, 
three  to  represent  the  employees,  three  the  owners,  and 
three  the  public.  Some  organizations  objected  to  having 
the  public  represented  on  the  Board.  As  the  public  pays 
the  bills,  in  the  last  analysis  Congress  gave  it  equal  repre- 


16 


sentation  with  the  employees  and  the  owners.  The  Board 
is  the  final  arbiter  and  in  all  cases  relating  to  wages  or 
salaries,  five  out  of  the  nine  members  must  concur  in  the 
decision  and  at  least  one  of  the  five  must  be  a representa- 
tive of  the  public.  There  is  no  anti-strike  provision,  no 
compulsion.  The  decisions  are  rendered  effective  through 
force  of  public  opinion  and  public  opinion  is  as  a rule  more 
effective  than  decrees  of  courts  or  the  acts  of  legislatures. 

In  Conclusion 

The  Transportation  Act  can  be  made  a success  only 
through  the  hearty  co-operation  of  all  interests  affected. 
Private  ownership  is  now  on  trial;  if  it  fails,  government 
ownership  may  have  to  be  the  only  alternative.  The  rail- 
road owners  under  the  Act  have  been  given  fair  and  rea- 
sonable terms.  They  must  now  work  out  their  own  sal- 
vation. If  any  fail  to  realize  the  changed  conditions  and 
still  insist  on  playing  the  part  of  Bourbons,  an  aroused 
public  sentiment  will  push  them  aside.  Self-interest, 
rivalries  and  prejudice  must  yield  to  an  earnest  desire  to 
serve  the  general  good.  With  increased  rates  the  public 
will  deniand  improved  service.  To  insure  it  in  fullest 
degree  there  must  be  team  work.  The  public  must  lend 
its  aid  and  offer  during  these  critical  days  of  reconstruction 
the  most  hearty  co-operation. 

The  Transportation  Act  is  entitled  to  a fair  trial.  It  is 
not  a perfect  measure.  Some  of  its  salient  features  are  the 
result  of  compromise  of  the  conflicting  views  of  Senate  and 
House,  but  as  a whole  it  is  a constructive  measure  of  great 
and  far-reaching  importance.  As  its  different  provisions 
are  enforced,  its  scope  and  beneficent  purpose  will  become 
more  and  more  apparent.  Its  success  will  largely  depend 
upon  the  manner  in  which  it  is  administered  by  the  Com- 
mission. The  country  has  confidence  in  the  integrity  and 
ability  of  the  members  of  the  Commission  and  looks  to 
them  with  confidence. 


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